Fighting Foreclosure in Indiana

AARP Indiana supports state legislation to require lenders to sit down with borrowers at risk.

Approaching 50, Linda Zehrung was confident about her financial security. She had a steady job as a janitor. She owned the home where she lived and two other properties.

But the Anderson, Ind., woman suffered a stroke in 2002 and lost her job. A year ago, after costly repairs and the doubling of her adjustable-rate mortgage, she lost her home to foreclosure and moved into one of her properties. Now 57 and caring for a severely disabled adult son, she struggles to pay the bills and worries about losing her other property, a duplex whose rents don’t cover the mortgage.

“I’d always been independent,” Zehrung said. “Believe me, this has been so hard.”

Hard, but not unusual, especially in Indiana.

The state’s foreclosure rates exceeded the national average in every quarter of every year since 1991, according to a Federal Reserve Bank study. And they are accelerating. Indiana’s foreclosure filings increased by 60 percent last year and are more than double what they were in 2006, according to RealtyTrac, a real estate research firm. Foreclosures were filed on 45,937 Indiana properties in 2008.

People over 50 accounted for more than a fourth of all foreclosures or delinquent mortgages in the United States in 2007, according to an AARP Public Policy Institute study. The percentage of people over 50 who had a mortgage had risen to more than half, compared with about a third two decades ago.

In late 2007, AARP Indiana joined with the state, industry groups and other nonprofit organizations to create the Indiana Foreclosure Prevention Network. Reaching out through a website, media announcements and a toll-free help line (1-877-438-4673), the network received 20,000 calls in its first year. It also provides a range of resources to at-risk borrowers, including foreclosure prevention workshops that bring borrowers and lenders together.

In addition, AARP Indiana supports state legislation to require lenders to sit down with borrowers who are at risk of foreclosure and discuss options for restructuring their loans.

“I think the Indiana House and Senate—Republicans and Democrats alike—see this is a major concern and want to do something to stem the high rate of foreclosures in our state,” said Paul Chase, associate director for public policy with AARP Indiana.

AARP Indiana also supports a requirement that tenants be notified when foreclosures are filed on the properties where they live.

“Often renters don’t find out the building they’re living in is in foreclosure until there’s an eviction notice,” Chase said.

Experts point to several causes for Indiana’s high foreclosure rates, including lost factory jobs, stagnant income, and generally low education levels that make it difficult for many laid-off workers to find new jobs.

“We generally don’t have a housing problem, we have an income problem,” said David Reingold, associate dean of the School of Public and Environmental Affairs at Indiana University in Bloomington.

Home values in the state have been flat, so when homeowners got behind, they couldn’t tap their home equity to catch up. Indiana also was hit hard by risky mortgage products, including subprime and interest-only loans—and by mortgage fraud.

“Before 2006 or 2007, almost all the loan foreclosures we were seeing in our clinic were from predatory loans. I wouldn’t even say subprime, I’d say predatory. Now at least half are due to job losses,” said University of Notre Dame law professor Judith Fox, who works with borrowers in crisis at the school’s Legal Aid Clinic.

“What’s frustrating now is we’re seeing this backside phenomenon—the banks are walking away,” Fox said. “The borrower is foreclosed on, they move, but the bank doesn’t sell the property.”

Fox’s research found a high correlation in South Bend between living in an African American neighborhood, having a subprime loan and facing foreclosure. The result: urban areas dotted with vacant houses, and plummeting home values.

Steve Hinnefeld lives in Bloomington, Ind., and has been a journalist for more than 30 years.

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